Foreign Direct Investment Screening and National Security: Reducing Regulatory Hurdles to Investors Through Induced Reciprocity

Abstract

An increasing number of States has adopted new or revised existing laws that establish foreign direct investment (FDI) screening mechanisms on grounds of national security. Comparing FDI screening in Germany and China as a case study, this article identifies three regulatory hurdles to investors related to such mechanisms, namely unpredictability, procedural uncertainty, and the lack of transparency in practice. Adopting the theory of induced reciprocity, this article argues that these regulatory hurdles could be reduced if symmetry constraint on national FDI screening schemes can be established between sovereign States in an international agreement. To achieve induced reciprocity between the European Union and China regarding FDI screening on grounds of national security, the EU-China Comprehensive Agreement on Investment could incorporate certain fundamental principles and regulatory objectives of EU Regulation 2019/452 Establishing a Framework for the Screening of Foreign Direct Investments into the Union as a starting point and a way forward.